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Think Big When You Make Financial Resolutions

New Year’s resolutions are often too big to actually maintain. You may have resolved in 2016 to save $500 a month to contribute to an IRA, or you’re determined to pay off your credit card balance. These are good goals, but are they realistic?

Find a better credit card

To really make a change, start by writing down your goals and figuring out how you’ll achieve them. For instance, if you want to pay off your credit card balance, you may want to transfer the balance to a new card with a lower interest rate.

Once you’ve moved the balance, don’t cancel the old card. You want it to stay on your credit report to help your credit score. You’ll be increasing your total line of credit, and your credit utilization ratio — the amount of credit you have available to the amount you’ve used — will improve.

Think about your retirement

No matter how young you are, you should be planning for retirement. If your employer offers a 401(k) plan, contribute to the max. If you don’t have that option, open an IRA at an institution like Baylor Health Care System Credit Union. People under 50 can contribute a maximum of $5,500 a year, and those over 50 can contribute up to $6,500. The amount you contribute is generally tax deductible.

Starting to save for retirement early in your working life can make a world of difference in your savings, thanks to compounding interest. Here’s one example, assuming a roughly 7 percent average annual return:

Save $5,500 per year beginning at age 25, retire with $1,201,741 at age 65.

Save $5,500 per year beginning at age 35, retire with $582,790 at age 65.

It’s amazing what a difference 10 years of saving can make.

Where’s the money?

Those numbers may make you think you have to act now. But where will you get the extra $100 a week to save the max in your IRA? You can start by cutting back on entertainment or dining out, or by bringing your lunch to work. That will save you maybe $50 a week.

Or you could look for bigger savings such as refinancing your car loan. Auto loan rates at credit unions are considerably lower than at big banks. According to data from the National Credit Union Administration, the average interest rate on a 48-month used-car loan from a credit union in December 2015 was about half that on the same loan from a national bank. That’s a lot of savings over the life of a loan that could be put toward your retirement fund.

If you’re a homeowner, consider refinancing your mortgage, as home loan rates are still very low. The rule of thumb is that if a rate is at least 2 points lower than your current mortgage rate, it makes sense to refinance, but there may be other reasons to do so as well. Just remember that you may have to pay closing costs for a home refinance, and those should be weighed against any savings you might reap.

The bottom line

Cutting back on spending and lowering your monthly payments can help make 2016 a good financial year.